In a promising turn for the banking sector, Tk1,085 crore flowed back into banks in December (Monetary Comeback), signaling a potential shift in economic dynamics. According to the central bank, the amount of money held outside banks dropped from Tk2.77 lakh crore in November to Tk2.76 lakh crore in December. While this decrease is encouraging, the figure remains 8.44% higher than in December 2023, when Tk2.55 lakh crore was outside the banking system – an annual increase of Tk21,000 crore reportedly.
Economists caution that an increase in money outside banks disrupts economic activity. When cash stays outside the formal banking system, it slows money circulation, stifles investment, and hinders money creation. In contrast, when funds return to banks, liquidity improves, loanable funds increase, and investments rise – fueling economic growth.
Central bank data reveal a concerning trend from October 2023, when Tk2.46 lakh crore was held outside banks. Inflationary pressures drove this amount upward each month, peaking at Tk2.92 lakh crore in July 2024. However, this upward trajectory slowed from September, partly due to internet outages and the assumption of office by an interim government after the Awami League’s exit.
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Despite persistent inflation, deposits in the banking sector showed some resilience. In December, deposits stood at Tk17.77 lakh crore, marking a 7.44% rise from Tk16.54 lakh crore a year earlier. Although the growth rate dipped slightly from November’s 7.46%, the sector had been on a gradual recovery since August.
August 2024 saw deposit growth hit an 18-month low at 7.02%. The situation improved in September, with Tk14,208 crore added to deposits, pushing growth to 7.26%. This upward momentum continued, reaching 7.28% in October and 7.46% in November.
Senior banking officials attribute the slow recovery in deposits to lingering trust issues following revelations of irregular loans and concerns about weak banks’ stability. Many depositors hesitated to entrust their savings to financial institutions, fearing potential losses.
However, new leadership at the central bank brought renewed focus on stability. Since August, Governor Ahsan H Mansur has implemented significant reforms, including restructuring the boards of 11 banks, injecting liquidity support, and addressing anonymous loan irregularities. While these measures haven’t fully stabilized weaker banks, they have curbed further deterioration.
The banking sector still has challenges to overcome, but there are signs of regained confidence. Improvements have been noted in Islamic banks and United Commercial Bank (UCB), with depositors increasingly trusting stable institutions.
As the new year unfolds, all eyes will be on the banking sector’s performance—whether this December rebound signals a long-term positive trend or a temporary fluctuation. The central bank’s ongoing efforts to bolster transparency and trust will be crucial in determining the sector’s future trajectory.
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